Empirical implications of equilibrium bidding in first-price, symmetric, common value auctions

58 Pages·1999·1.8 MB·English

by  Hendricks, Kenneth

Digitized by the Internet Archive
in 2011 with funding from
Boston Library Consortium Member Libraries
http://www.archive.org/details/empiricalimplicaOOhend

UJiUr-VT*
|
HB31
M415
•
working paper
department
economics
of
Empirical Implications of
Equilibrium Bidding in First-Price,
Symmetric, Common Value Auctions
massachusetts
institute of
technology
50 memorial drive
Cambridge, mass. 02139

WORKING PAPER
DEPARTMENT
OF ECONOMICS
Empirical Implications of
Equilibrium Bidding in First-Price,
Symmetric, Common Value Auctions
Kenneth Hendricks
Joris Pinkse
Robert H. Porter
No. 99-19 October 1999
MASSACHUSETTS
OF
INSTITUTE
TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASS. 02142
"PffiBJSf
LIBRARIES
Empirical Implications of Equilibrium Bidding in
Common
First-Price, Symmetric, Value Auctions
Kenneth Hendricks, Joris Pinkse and Robert H. Porter*
August 1999
Abstract
This paper studies federal auctions for wildcat leases on the Outer Conti-
nental Shelffrom 1959 to 1970. These are leases where bidders privately acquire
(at some cost) noisy, but equally informative signals about the amount of oil
and gas that may be present. We develop a test of equilibrium bidding in a
common values model that is implemented using data on bids and ex post val-
ues. We compute bid markups and rents under the alternative hypotheses of
private and common values and find that the data are more consistent with the
latter hypothesis. Finally, we use data on tract location and ex post values to
test the comparative static predicton in common value auctions that bidders
tend to bid less aggressively when they expect more competition.
*Hendricks and Pinkse: Department of Economics, University of British Columbia, Vancouver,
BC, Canada V6T 1Z1. Porter: Department of Economics, Northwestern University, Evanston, IL
60208. We received helpful comments from Susan Athey, Phil Haile, Preston McAfee and from
the participants in a number of seminars. Hendricks and Pinkse received financial support from
SSHRCC, and Porter from the NSF.